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When I began the series of posts on Google vs. Android I put forward some questions about the business logic of Google becoming an operating system supplier, especially as that role can be seen as being counter-productive to Google’s strategy.

I noted three strategy costs associated with a zero priced systems software bundle.

A opportunity cost with other platform vendors, namely Apple who might retaliate against Google’s core business.

Versions of the software being usurped and modified to provide distribution to Google’s competitors.

Damage to Google’s brand and positioning and negotiating power in relation with other members of their value chain.

More fundamentally, Google-as-systems-software is asymmetric to Google-as-cloud-software and contradicts the value proposition that Google enables value in the web not in accessing the web. Android appears to be a nod in the direction that systems software still matters.

In my numerous posts on the need for integrated development in the era of mobile computing, I also criticized any device vendor that chose to rely on a software stack from an external supplier as foolish. I claimed that they would end up creating uncompetitive products. I thus labeled Google’s pursuit of them as ultimately futile.

More than a year has passed since I began this critique of Android. It seemed quixotic as Android volumes exploded and a mad rush to the platform spun it into becoming the biggest mobile platform by units.

However those costs did not go away. As the platform grew, they compounded. At first I wondered whether Google management was seriously considering the cost or whether it was giddy with the semblance of success.

Well, finally, it seems that Google management has begun to acknowledge that these costs exist. In a recent Bloomberg story there are many claims that Google is reversing many of the operating principles of Android. Namely:

Restrictions on who gets what version of software when

Restrictions on what changes can be made to the software

Requirements for approval for source code changes

These changes, if feasible, will affect the ecosystem dramatically. It will also reduce the second type of cost associated with the platform (the cost of enabling competitors.)

Good news for Google then.

There are still the other problems (disconnect from business model, loss of goodwill, damage to negotiating power). But there is actually a more sinister new problem brought about with the new crackdown: Android will no longer be disruptive.

I also wrote a few posts (e.g. What has Android done for Apple?) where I claimed that Android has the power to accelerate smartphone adoption, especially in the “Wild East.” The power of Android was with the little vendors–the ZTE and Huaweis of the world. They could finally make smartphones cheaply–almost as cheaply as voice phones–and not have to negotiate licenses and pay for software IP.

It would be these smaller “unbranded” vendors that would really disrupt and, with them, Android would become ubiquitous for the billions of mobile broadband non-consumers.

However, with the new policies, it’s much harder for this to happen. Smaller vendors will look at the new hoops they have to jump through and probably say “no thanks.” In a beauty contest, they don’t look so good next to the big brands.

They may turn to homebrewed versions of Linux or new forked Androids. This redefinition of openness will essentially remove Google from the disruptive trajectory of mobile computing.

So we’re back to the old question: Google vs. Android, who wins? If Android still has hidden costs to Google and, with its sheep’s clothing cast aside, no longer offers significant distribution to the low end then how will Google benefit? The answer that there will be additional ad revenue does not cut it. That revenue would have come from placement deals with other incumbent platforms (just like Google manages to compete on PCs without having to provide its own OS).

As Google figures this out, its licensees are at the mercy of the ensuing decision. Good luck with that.

No surprise that Google has decided to control and restrict access to the source code – with firms such as Myriad and RIMM offering Android emulation layers it's clear that making the code publicly available without any real restrictions would hurt Google in the longer term.

However the decision to exert control must surely make it more difficult for Google to wash it's hands of any potential Java copyright infringement – previously Google had tried to claim that the Android source was developed by the OHA, not itself. That is now patently shown to be false, as it is that Android is an "open" OS – it's never been truly open, at least not in a development sense, and that couldn't be any more obvious now.

The decision to play favourites with vendors and even operators should lead to those vendors/operators seeking an alternative platform – whether they will or not remains to be seen. If it does, I hope they consider MeeGo as a truly open source alternative, particularly as Nokia are no longer there to screw things up.

Choosing WP7 is likely to be worse for them than it is with Android as there is no differentiation from the get go, but at least there are no favourites (unless you happen to be Finnish, of course).

As for Google, their behaviour reminds me of the neighbourhood drug dealer – free samples until your hooked, then it's too late to give it up…

when you grow big like apple, facebook or google and have big ambitions and want to stay independent, you have to compete, whether you like to or not. Shareholders demand exponential growth every quarter. Apple and Amazon don't really compete, but Apple has gotten into ibooks, Apple and Facebook businesses only marginally interact, but Apple has come out with 'ping', Apple and Skype don't really compete, but Apple has come out with facetime. Microsoft and Apple don't really compete on enterprise turf, but Apple is no doubt preparing an assault on microsoft enterprise base. Get real please. Google is in the business of organizing all of worlds information, so that makes microsoft, apple, facebook, linkedin etc and all other properties which organize info and hide it from google, google's competitors. Google's choice was to either watch Apple take over more and more of Google's services on iOS devices and then complain to EU regulators(ala microsoft) or copy/clone iOS. Maybe Apple would have sustained google's services on iOS forever, I doubt it though, shareholders have the final say. There is no doubt Apple has its eyes set on netflix either to buy it or to kill it. Profit is the elixir of capitalism. And Apple and facebook are not really competitors, but iAds is now competing not just with google, but also with facebook ads.

I think Google has issues only with vendors who want to rip out google services from android totally like facebook. I don't think huawei or ZTE should be affected.

Hamranhansenhansen

Competing and collaborating at the same time is classic Silicon Valley. Nothing new. Google uses Apple WebKit in Android, Chrome, Chrome OS. But Google only has one profitable product, which is ads. And it is one where you dig into the customer's personal information. Some impartiality might benefit Google. Like a bartender staying above the fray. It's not just Apple, who are only 5% of mobiles, but also RIM and HP and others who have to trust Google.

Your timelines seem all wrong to me.

Android was created circa 2005 to guard against the threat of Microsoft monopolizing the phone market with their operating system software, not against Apple making such a good phone that everybody wanted it. Apple is unlikely to monopolize the phone market since they don't license their system. Although WebKit is on everything except Microsoft.

iPhone comes out in 2007 with Google services, all of which are still there today in 2011. Not a single one has been replaced by Apple. So there has not been an opportunity for Google to watch Apple replace their services, let alone for Google to respond to that. iAds competes with AdMob, but neither of those were owned by either Apple or Google until very recently. And Apple tried to buy AdMob first. Apple's advertising efforts were not about Apple replacing Google AdMob.

Ted_T

"I think Google has issues only with vendors who want to rip out google services from android totally like facebook. I don't think huawei or ZTE should be affected."
In fact Chinese "Android" phones are ripping out Google search and replacing it with Baidu so Huawei andr ZTE will most certainly be affected.

No one can predict the distant future, but there is every indication that Steve Jobs' Apple, with Google's CEO sitting on Apple' board, and one of Apple's directors also on Google's board would have been content with an Apple/Google strategic partnership for the foreseeable future. Apple under Jobs II has always been about a small product footprint and sticking to its core competencies. It had no reason at all to compete with Google, and considering the growth rate they are getting, stockholders couldn't complain about anything. Google easily could have had a decade of close cooperation and profitable peace with Apple, to their mutual benefit.

JustSayin

Apple and Google had a common enemy in microsoft back then.

http://twitter.com/davidchu @davidchu

Google and Apple were a match made in heaven. Google excelled at web infrastructure and services while Apple excelled at the consumer experience tied to the OS. We will never know if their business models would have collided, but we know who fired the first shots.

Also Google is an online advertising company. Those aren't words from my mouth. Read their Annual Report and they will tell you themselves.

Addicted44

The correct way to look at the users relation with google is not as their customer but rather as their product.

Walt French

“ I don’t think huawei or ZTE should be affected.”

Unless it’s the same huawei whose non-Honeycomb tablet, announced this year is now sold thru OverStock.Com. This move is a body blow to small tablet wannabes and will color their plans (assuming they survive) for years.

http://twitter.com/Accent_Sweden @Accent_Sweden

Another question is whether this robotic genie can be enticed back into the bottle. Will Google be able to maintain the brand or will licensees simply ignore the updates and continue offering unspecified "Android" phones (older versions of the software) to consumers? The risk is that the licensees simply won't mention the version number and most consumers have no idea about versions anyway. I suspect most assume an Android phone is an Android phone with no differentiation other than price. They take for granted they'll have the latest version and can update when they want. This could be a significant threat to the Android brand as increasing numbers of users become disillusioned.

stephenreed

This is a solved problem, as demonstrated by many tech brands.

Here are a couple of examples …

(1) Each Microsoft Windows version has an updated theme that is readily apparent when an older device is compared side-by-side with the new one.

(2) Each Intel processor version is indicated by a prominently placed badge on the case.

We insiders have come to know Android versions by their project code names like Honeycomb, but to answer your point, I believe that future Android user interfaces may clearly indicate a version number like Android v3.0.

http://twitter.com/davidchu @davidchu

I don't think non-techie consumers even know that Froyo and Honeycomb were different releases of Android, but they do know the iPad2 because of the tremendous media buzz that accompanied it. My sister only knows that her phone runs Android which was made by Google.

Tech companies have traditionally been successful at marketing towards the techie crowd. Not so much at the mass consumer market.

stephenreed

Let me clarify my point …

Suppose, in the USA, your sister walks into a Best Buy to get her next phone. Perhaps there will be several Android phones there but those screens *look different*. When she asks, the salesperson says that the one that looks like her old phone is Android v3.0 say, versus the other two phones that are Android v3.5. The salesperson goes on to upsell her on the newer version of Android because it has say Near Field Communications or whatever.

Brand versioning is a solved problem – the product simply has to look different and clearly announce its newness.

http://twitter.com/davidchu @davidchu

Let's agree to disagree.

barryotoole

That would not quite solve the problem. Different OEMs use different skins to differentiate their HW from the competitor's (as all phones look like iPhones now), even when they are running the same version of Android. If different versions will have to look different still, this will compound the confusion a non-techie customer (95% of population) will have.

The only option will be to brand the handset with the version of the Android running. Welcome to the world of PCs, where laptops are abound with stickers for the CPU, OS, GPU etc. After all, there is plenty of space on the back of a cellphone to fill!

http://twitter.com/NanDuan @NanDuan

Why would "The salesperson goes on to upsell her on the newer version of Android because it has say Near Field Communications or whatever"? The core problem is now Google and its licensees are at conflict. Best Buy salesmen are told to sell whatever devices that give them better profit, and this may well be licensees that choose to fork Android.
Brand versioning is a tactical problem, and may be solved as you said. But that does not detract from the original discussion, which is a strategic one. If licensees have an economic interest not to follow Google's path and use FUD / other marketing techniques to confuse consumers, they will do so. The channel is just one piece of this value chain, with their own vested interests. They are not here to sell what's best for the consumer (which may be the latest and greatest from Google).

Addicted44

The skinning idea you are talking about doesn't work for android because the same version of android could have completely different looks on different phones. So htc s android phones look completely different from samsungs and motorolas. Unless that is vcurbed, there is no way skinning will be a sufficient differentiator between different versions.

r00tabega

This is complicated by all the "skins" thrown on by various manufacturers – Moto Blur, TouchWiz, Sense, etc.

How can you tell if you're running Froyo vs. Gingerbread if the skin looks the same regardless?

And it was deliberate, because they knew that without some of their own visual branding, they would indeed become a Dell/HP/Lenovo of mobile, and that's not where the profits are.

WaltFrench

An example of your point: Eclair-based phones continued to be heavily promoted by the carriers last year, well after the very important Froyo upgrade had been out for months. And even TODAY, the HTC Aria, shipping with Eclair, is one of Consumer Reports “Top Rated” phones for AT&T customers.

It'd be easy for Google to theme the home screen with honeycomb — I can see a very attractive graphic — or otherwise brand it, but the carriers have a compelling interest to override that generic branding.

JustSayin

If an Android phone wants to be a Google experience phone, it means that Google requests an unmodified Android experience, which also includes the graphical user interface (GUI). Furthermore Google requests preinstalling all Google mobile services. However, manufactures are also allowed to add further applications to their phones. I don't think anybody is going to be 'really' bothered by this, apart from facebook.

Hamranhansenhansen

HTC has their own user interface, and so do others. Surely, they will be bothered by this.

JustSayin

HTC has an user interface true, but I doubt they want to rip off the google services and replace them with microsoft/facebook services. That is the crux of the issue.

http://twitter.com/davidchu @davidchu

It doesn't matter what HTC wants. They hold very little leverage. Its the carriers that hold the power. They don't add extra apps because they want to. They add it in because the carriers tell them to do so. The Bing deal added money to Verizon's pocket not HTC.

barryotoole

Well said. VZ is notorious of adding crapware and disabling functionality to the handsets they sell.

Apple brought forward a business model that reduced telcos to pipes; Google now wants to emulate Apple.

The sad thing is that there will be only three major carriers in about a year. This will terribly limit consumer choices and enhance their clout.

fanfoot

Nobody will be hurt by this? In a commodity market the lowest cost producers will win. Which means that say somebody like Motorola, who isn't good at being the lowest cost producer, will lose. The game has shifted. There are going to be winners and losers. There should be less fragmentation, updates should get to customers quicker, prices on Android phones should drop more quickly, and companies like Motorola might start looking for an exit…

JustSayin

just wondering, do you have any insider info if android is profitable or not ? I think lots of google executives have told publicly that android is profitable already today.

asymco

If Android does not have any revenues but does have costs so it cannot be profitable. Andy Rubin says Android is profitable from advertising. But that does not make Android profitable. It makes ads on Android profitable. Would those ads have never been seen if not for Android? We don't know. That's the whole question here. How much benefit would Google have had if it had not built Android.

davel

I think as you have pointed out before that Google released Android in the wild to create a broader penetration of smartphones. This dovetails with their core competency of search and ads.

I think Android has been successful in increasing the number of raw units with the ability to perform the smartphone function if for no other reason than Apple can only make so many iOS devices per month.

stephenreed

Horace, here is a clue from StatCounter who aggregates web site hit statistics.

gs.statcounter.com/#mobile_vs_desktop-US-monthly-201010-201103-bar

Their estimate is that, in the period October 2010 through March 2011, hits from mobile accounted for 6% of all hits on the tens of thousands of web sites monitored by StatCounter.

As is well known, Google dominates mobile search. Suppose that 97% of mobile search belongs to Google, then supposing Google 2011 ad revenue is roughly $10 billion, then (.06 * .97 * 10b) the roughly the amount from Android is half a billion dollars.

Considering only the ongoing annual expenses of Android, clearly $500 million will more than cover those. Offsetting the considerable sunk cost of creating Android in the first place, is the incredible exponential growth rate of Android adoption. A hypothetical startup company consisting of just Android, would have a very high price earnings ratio if the stock were public, and would otherwise have an IPO value in the tens of $billions .

What's wrong with this analysis?

Narayanan

How can you assign all Google's mobile search to Android while ignoring an almost equal level of installed iPhones not counting the iPods/iPads. In addition, many Verizon phones have Bing installed pushing down Android's share of the search.

stephenreed

Right, that's whats wrong with my analysis.

Therefore let's suppose that in 2011 Android has say 30% of mobile search. Then the amount of Google revenue due to Android becomes (.3 * 500m) $150 million, before the associated expenses.

Enough to make my point but not in such an overwhelming fashion as I incorrectly figured before.

asymco

I ask again, would those ads have been served to Google had Android not been built? Google and Apple had a great relationship before Android. Their CEO was on the board, they shared a stage. Google is the default search engine in Safari.

In other words when the decision came to build Android (in the image of iOS not Blackberry as it was originally envisioned) there was a "do not build Android" option.

I'm asking if the "do not build" option could have been worth more.

barryotoole

I tend to agree with stepenreed. As you have repeatedly stressed, to be a winner in the mobile world a company has to own both the HW and SW. I feel Google, in competing with Apple by introducing Android wanted to control its own destiny.

Had Google stuck to its partnership with Apple and not made Android, I feel that both the companies would have made off very well, and as good, if not better, by feeding off each others' core competencies. Other than a hunch, there is no way to predict what could have happened if…?

JustSayin

we do not know a lot of the internal discussions that took place, maybe Google asked Apple for guaranteeing virtually permanently the inclusion of google services on idevices, Apple refused(the blocking of google voice comes to mind) or maybe Google feared Microsoft more than they valued Apple partnership, if android was not around, Microsoft would have occupied all the anti-Apple space. We note how Microsoft has coopted Nokia to make WP7, maybe they would have coopted RIM too and we would have had a rerun of PC Mac era. On balance I find Apple Google smartphone rivalry good for consumers. This ensures no company has a free run and Microsoft does not get to dominate by default. Android is an attempt by Google to control its own destiny and this is exactly what Apple does( blocking flash is about Apple controlling its own destiny)

WaltFrench

Umm, yes, the “do not build option” might have had a higher expected value. But that is NOT how businesses or individuals SHOULD be making decisions.

Suppose, however, that Microsoft came across some clever formula for making their search especially appealing to Apple, AT&T and Verizon (all the parties with leverage). Suddenly, Google is on sitting on the sidelines with nobody asking her to dance.

Like many of the Microsoft products that seem to have been built against the one-in-fifty chance that Apple would stumble and Microsoft could pick up the pieces, Google might have figured they had no choice but to defensively build Android, to prevent their being excluded. I suspect they had their sights quite a bit higher, but in terms of game theory minimax, Android was probably necessary for Google because of the very real risk of getting locked out of mobile advertising.

http://twitter.com/NanDuan @NanDuan

No, NPV is EXACTLY how business decisions SHOULD be made. What you're talking about is not properly factoring in risk in your NPV analysis. Yes, no model is perfect, and there are always tons of assumptions which may come back to haunt you, but what you're suggesting otherwise is pure gut / instinct based decision making.
But I digress. What I do want to point out is how paradoxical it is, if indeed Google saw Android as purely a defensive strategy in mobile, given how Google succeeded in PC era despite Microsoft owning IE and IE still owning 60% market share in the critical access point to Google's web services. Yes, MS had its hands tied because of anti-trust, but still they own the access point and could influence the users.
Also imagine this. Even if Android becomes Windows like in market share in mobile – which I don't believe it will, given the mobile value chain and that no stakeholders (operators, handset vendors, developers etc.) except Google want to see Android own majority market share – what would immediately happen? Google will be just like MS in the PC era. Yes, it owns the access point, but that's not guarantee for success, as MS has clearly demonstrated already.

WaltFrench

As an investor, I usually think of NPV as independent of my actions. (E.g., buying one of a billion shares in some company affects it not one whit.)

What I was alluding to is not the external risk but rather the response of other market participants. This week, Google's tolerance for Baidu and Bing snapped; it was a response to others exploiting cracks in their plans. I was saying that if Google had NOT developed Android, there would have been a different set of opportunities left open to competitors, some of which could have kneecapped Google.

Lots of business seems to be about out-running your own mistakes/oversights/competitive openings. Android has moved to Android II and now has a new set of challenges but many of them, such as Motorola's musing about creating its own OS, are sufficiently far in the future* that they shouldn't factor in Google's moves.

* I just don't see the value proposition of Yet Another proprietary mobile OS besides Android, iOS, BlackBerry, WebOS and Windows Tablet. What can they possibly do enough better than competitors that would drive business their way, enough to cover the huge development and support costs?

berult

If the Market were a sphere and the horizons were your sphere of influence, whom would you entrust in scaling up the sphere …de facto pushing ahead your business horizons, especially as it ought to expand your business even further …for you've astutely tethered to the sphere's business horizons?

kevin

Since Android isn't sold for a price, profitability depends on how Google wants to count the mobile ads revenue and the development costs (of Android and the mobile services). Since Google refuses to break this out in their quarterly/annual reports, they can say just about anything they want.

Ted_T

It depends on how you calculate that profitability — as Horace points out, the crucial factor is the lost opportunity costs.

Let me ask you this: do you think that Google makes more money from per Verizon Droid that uses Bing (counting in the pro-rated Android development/marketing costs), or per iPhone? I'd say there is every indication that the iPhone is more profitable for Google than Android — and would have been, much, much more profitable without those Android costs and without iAds and other Apple competitive moves.

JustSayin

Apple competitive moves do not affect google alone, they affect lot more companies like Facebook, Amazon, Netflix, Microsoft etc. Apple and Facebook are a match made in heaven, yet facebook wants to make android phones. Itunes integration with facebook would make itunes even more popular.

erictsai

I hate to disagree with Horace since I find his analysis very insightful, but if Apple is selling every iPhone that they can build (which is the approach that Horace has been using to make his highly accurate revenue forecasts) than that seems to put a cap on how much Google can benefit from Apple's presence in the smartphone market (from ads on the iPhone).

In that view, then any revenue that they get from Android phone ads is a net positive for them, since the Android marketshare is essentially share that Apple wouldn't have been able to service due to production limitations.

It might have been nice for Apple and Google to have had a happy partnership forever, but it seems that Google hasn't yet encountered any negative implications from antagonizing Apple. It's services are still available on the iPhone, it's ads are still being served to iPhone users, plus it's getting revenues from all the Android users out there. Apple has not yet taken any action to punish Google for its betrayal, except for perhaps iAds. (Is there information out there on how successful iAds has been in taking ad revenue from Google? Nothing that I've seen seems to indicate that it has been taking significant ad revenue share from Google.)

We'll have to see if Google continues to suffer no consequences from antagonizing Apple. In the mean time, it seems to be having its cake and eating it too.

It'll be interesting to see if Google's recent actions in regards to Android cause an exodus of OEM manufacturers to Meego. Google's actions may save Meego from Nokia's defection.

Are there any other existing smartphone platforms out there that could benefit from Google's actions?

asymco

Apple is selling every iPhone they can make for the current definition of the iPhone. Tim Cook has made some clear statements that they are looking to broaden the portfolio and that they won't give up share. The biggest question for the industry is when will Apple switch its phone strategy from skim to penetrate.

berult

It's already on the way! Apple got its foot in the door when it showcased the current touch-based shrunken Nano. Here comes your potential vector for deep Market penetration. FaceTime and AirPlay here hold sway. FaceTime/AirPlay the heck out of the Nano …and stick it on the consumer's wrist, …or wherever it comfortably fits!
…a killer with an iPad type deal on cellular bandwidth usage, as well as with bluetooth enabled interactions… In brief, commoditize FaceTime within the bourgeoning Apple ecosystem and spark a spill-over onto the world at large.

That what I call outflanking, FaceTiming the ad-centric competition! Next iPods iteration could very well send shrivers down the Market's spine.

erictsai

Yes, it will be interesting to see when Apple decides to service the lower end markets that it currently isn't serving.

In the meantime, Google is helping to expand the share for advanced smart phones. Apple and Google are both working to grow the market of app-based smartphones, which is the market that Google can serve with ads. Android is reaching users that Apple isn't serving either because of price or because of carrier selection. So I'd argue that Google is profiting from Android due to Android expanding the market that Google can serve with mobile ads above the growth that Apple is providing. We'll see how Android holds up as Apple expands the range of the market that it serves. (Another benefit for Google is that it's pushed Windows Mobile to also ran status, though we'll see what Nokia's adoption of WP7 will do for that platform.)

It terms of how Apple with begin to address the market below the one the iPhone currently serves, I've been wondering how Apple will manage to reduce the cost of the iPhone without removing elements that are essential to the iPhone experience. With the iPod, it was merely an engineering issue to take the existing iPod and shrink it to create the iPod mini. But, shrinking the iPhone presents some user experience issues. Apple could create new versions of its first-party apps for a smaller form factor, but maintaining compatibility with thrid-party apps would be a problem. Would consumers buy an iPhone that couldn't run apps? Running apps seems now to be an important part of defining what a smart phone is. Anything less now would seem to be "just" a feature phone. (Ironically, the first gen iPhone, as initially released, would probably now be considered an advanced feature phone.)

Alternatively, would Apple sell what would be essentially an iPod Touch with a cell modem with a lower quality screen and lower-quality camera? That would seem to dilute their brand and introduce a level of ambiguity to their usually clear cut product differentiation.

I'm curious to see what Apple does to address a broader market, but I'll admit to having no idea how they'll do it.

Are any of these things a death blow to Google? No. But I'm sure Apple has more things in the works. They seem to like the 'Death by 1000 cuts' approach. Apple has a lot of experience doing that to MS.

WaltFrench

@Ted_T, how much profit do you get from buying a car alarm? From building a fence around the little-noticed back side of your house?

Google has profited from Android even if only by preventing other competitors from coming in and pulling an Android on them. No reason to presume that Apple, Microsoft or anybody else stays content with the status quo forever; in fact, quite the opposite.

http://twitter.com/JanCifra @JanCifra

I think Googles move to tighten the control over Android is a move from Apple's playbook. The initial reason why Google went for Android was not unlike Apple doing iAds. Steve Jobs felt that nobody was doing a good job at mobile advertising and so Apple went ahead and is trying to do it themselves. Google has a vested interest in mobile computing and as such feels people are not doing a good job with it – hence their move into mobile OS. Very Apple like. Thoughts?

asymco

Since Google's CEO sat on Apple's board for several years, it's unlikely that Google felt that people were not doing a good job with mobile computing. He would have had to feel that Apple was not doing a good job and that Google would have to do better. Three years later and it seems that Google is still trying to match Apple.

JustSayin

I don't think google is the sort of company that continues to experiment, despite it being a failure from their viewpoint, Google wave comes to mind, it failed and it was immediately axed and its useful parts were scattered over other google services. So if they are continuing to invest in Android, it indicates, it has succeeded from Google's viewpoint, how Google calculates their ROI on android, I have no idea. I think standing on the outside, it is difficult to see how Google views android internally and what are the metrics for it to be considered a success. I think Google should be compared to newspapers, newspapers were just advertising companies who made most of their money from advertisers and it was this advertising money that funded journalists.

http://twitter.com/JanCifra @JanCifra

Indeed in the beginning Google was the greatest ally of Apple providing a number of services Apple boasted with on the iPhone. I guess at some point Schmidt and the Googler's wanted more control and went ahead with Android. Now as they are getting negative feedback from the fragmentation as well as getting competition from Bing on their own OS – they are following the path to more control. Hypocrites – yes. Does it make business sense – yes. Will it work? We shall see.

http://twitter.com/davidchu @davidchu

Everyone fingers Eric Schmidt as being responsible fro Android and the Apple fallout, but the truth is that Larry and Sergey bought Android without his knowledge.

I think Google was just tired of everybody free loading off of them. It is really expensive to develop an OS. The estimate is about 1 Billion dollars without considerations for continual support and maintenance.

neilw

Tired of freeloading? Exactly what do you think they had in mind when they created an open-source OS in the first place?

http://twitter.com/davidchu @davidchu

I'm talking through their perspective. Also, Android is hardly open-source. You could download it but you couldn't contribute. Google still had to do a lot of work to get it to where it is today.

neilw

Understood, but it would be highly disingenuous of Google to suddenly start fretting over how others are "freeloading" off their efforts. They quite knowingly put the system in place at the beginning to encourage this exact behavior.

barryotoole

Please don't say that to any Fandroid. To them, the greatest virtue of Android is that it is open.

barryotoole

Au contraire. Google wants to encourage freeloading for three reasons:

1. You become addicted to free software and services and detest paying for them from other vendors
2. If you are using any free software/service, you tend to 'understand' that ads have to be displayed to offset 'cost', and Google makes money
3. Google happily mines your personal data through the services they provide and then turn around to make a profit by selling/using them

WaltFrench

@DavidChu, here's how Google's developers page FAQ reads as of a minute ago:

“Why did we open the Android source code?
Google started the Android project in response to our own experiences launching mobile apps. We wanted to make sure that there would always be an open platform available for carriers, OEMs, and developers to use to make their innovative ideas a reality. We also wanted to make sure that there was no central point of failure, so that no single industry player could restrict or control the innovations of any other. The single most important goal of the Android Open-Source Project (AOSP) is to make sure that the open-source Android software is implemented as widely and compatibly as possible, to everyone's benefit.

You can find more information on this topic at our Project Philosophy page.”

(I have added some emphasis.)

There is no question that Google held out a higher degree of openness in order to attract developers, especially those who were outraged at Apple's forbidding their apps — e.g., Apple stiffing apps intended to bypass AT&T terms of service such as tethering. They explicitly encourage “freeloading” on their website as I see it today. Overall, the outrage always had the nasty chemical odor of an AstroTurf campaign to me, but I know many were “organically” upset.

Likewise, Verizon apparently was only too happy to encourage an alternative platform and must have rightly figured that they had plenty of time to discourage “inappropriate” usage with caps and specific rate plans after they had attracted enough momentum that they wouldn't discourage ALL usage.

These certainly seem to be ordinary commercial decisions per Horace's logic, allowing the “open” dogma to be cynically NewSpeaked.

For me, the interesting question going forward is how developers will respond to this move. They continue to have a quite open environment where they don't have to worry about Google taking down an anti-gay tract, for example. I wonder whether this freedom will also be reined in; there seem to be plenty of ways apps could subvert Google's commercial intentions. In any case, those who sincerely were outraged at Apple could feel deeply betrayed by Google's move.

http://twitter.com/davidchu @davidchu

Thanks for the detailed reply.

I usually pay more attention to what a company does than to what it says. A lot of alcoholics say they can stop anytime, but we know where they will be once 6 o'clock rolls around.

As for the developer question. Google has been pulling apps for quite some time, but it rarely hits the main press. I'm sure they will exert more control in the future, but given their track record of allowing more controversial apps, I don't think developers will worry too much about it.http://brianshall.com/content/why-did-google-pull…

I think most developers are more bullish on the platform now that Google is reining in control. The most time consuming part of an app is not in the development but in the support and maintenance. An appeal of contributing free software has always been that you can build whatever you want without the responsibilities of fixing bugs. Top developers don't mind handling support for their mistakes, but get furious about bugs in the platform or because a SI wrote a crappy driver or used crappy components that failed.

I REALLY like your point about how apps can subvert a platform. In the old world, a company sold their OS and let other developers build on top of it. They didn't care as much how the developer monetized since they had already gotten paid. In Google's world, the OS is free and can remain free as long as Google keeps getting the data it needs to serve better ads than it's competition. So if you want to be on Android, you better not get in the way of Google and their data.

I think Schmidt sitting on the board and seeing the projections said to himself we need to carve a piece of this pie and I have the blueprint to do it.

http://twitter.com/davidchu @davidchu

From what I understand, Schmidt excused himself from iPhone discussions due to conflict of interests starting in late 2007, early 2008. He joined the board on August 29, 2006. I really don't think Schmidt ever wanted to take on Apple. Sergey Brin was quoted that he was sad to see the relationship with Apple sour but that mobile computing was too important.http://techcrunch.com/2008/01/13/googles-eric-sch…

kevin

Wow, that's revisionism.

Google does have a vested interest in mobile computing. At first, in the pre-iPhone days when ex-CEO Schmidt was on Apple's board, they were protecting themselves from Windows Mobile eventually blocking their search and ads. Their prototype phone looked like a Blackberry. Then last year, they publicly and repeatedly claimed it was to protect themselves from a draconian future where one company (Apple), one man (Jobs) ruled. Their OS now has the look and feel of a copycat iOS.

And now you want to say that Google did Android because they felt people were not doing a good job with it? Talk about Kool-Aid.

"It would be these smaller “unbranded” vendors that would really disrupt and, with them, Android would become ubiquitous for the billions of mobile broadband non-consumers. Smaller vendors will look at the new hoops they have to jump through and probably say 'no thanks.'"

I don't think that's the case. I don't think that small vendors bother with the hoops anyway. This move is more likely going to hurt the big vendors, who wanted more control by implementing their own shadow Android ecosystem. Think the Motoblurs and TouchWizs of the world, think the big carriers with their crapware.

The small manufacturers just churn them out, they're in it for the volume, they have no desire or ability to craft their own shadow infrastructures. They will still reach that billion.

asymco

We'll see. Recall that Microsoft promised the same things to Windows Mobile licensees. They rushed to build thousands of different products with it. Then Microsoft decided that it could not benefit from the little people. Windows Phone became for big OEMs only.

The point is to look at motivation. Is Google still motivated to provide unfettered access to Android?

davel

It seems not to be the case. Perhaps they are taking Steve's jabs about differentiation and user experience to heart.

Or perhaps since they now have the marketshare they just want control.

kevin

The big mfrs aren't the source of disruption as they are aiming for the same limited high-end market as Apple. (Without Android, Nokia and Samsung were the best at churning out high volume, low-cost phones, but with Android, the smaller unbranded mfrs have already started to eat them up.) So whatever impact this move has on the big mfrs will not really affect the potential disruption.

To see the real effect, we'll have to see if and when the source code for 3.0 and future Android releases will be made publicly and openly available, and if not made open outside of OHA, whether Google or OHA will sue anyone who uses bootleg copies. My own thinking is that we've not yet heard the last of the restrictions.

Small mfrs can certainly continue by forking v2.3. This they may do, but given their lack of software expertise or desire (as you said), the fork will rapidly fall behind whatever Google is doing while increasing their own costs. So using some other open source software (Meebo or Linux) might be just as good or better (reduced costs).

http://twitter.com/e_orione @e_orione

You are forgetting software.
Steve Jobs said that he has understood one foundamental thing about telephones: they are software.
If google ports android 3.0 on phones software house will continue to release new app for 2.3 and older android versions?
If you don't hop when requested and remain with 2.3 forking, you will loose the app market that is the first reason people buy a smartphone.

relentlessfocus

One man ceiling is another man's floor. To Google the problem is uncontrolled fragmentation of Android. To Android handset makers the problem is differentiation from their competition. To solve Android's problem the handset makers lose. To solve the handset makers problems Android loses.

Google would love the hand set makers to compete on hardware alone but that's a losing proposition for the hand set makers because the product life cycle becomes so short that the handset makers can't amortise their costs over such a short production run before obsolescence in any price category sets in. This drives the price of hardware down… the famous race to the bottom.

WaltFrench

Yes, it was just a few weeks ago where Rubin (?) defended the chaos of the Android landscape as being what “open” was meant to allow. Although (per reply comments above) I think this is a pretty radical shift in “philosophy,” it could be seen as a rational fine-tuning of what best serves the ubiquity of mobile internet usage now that Android is well-established.

YipYipYipee

Google is realizing fragmentation is affecting quality app development. Indeed, engineers have to work twice as hard to insure QA of their releases. And you can forget about enterprise deployments.

It’ll be interesting how Google will deal with deployment and management of ChromeOS. I’m sure there are valuable lessons to be learned from their (in)experience in dealing with Android.

kevin

I think Google was moved not so much by fragmentation or QA costs, but by the major devaluing of both the Android and by associaton, Google brands caused by the myriad of really cheap tablets and smartphones. You know, the less-than-$100 pieces of plastic junk with Android that made it to the shelves of Kmart and Amazon, that were bought and then largely returned.

YipYipYipee

Well, if that's the case, then the definition of "open" has fundamentally changed. And as for the the 3rd/4th tier products, as the old saying goes, you get what you pay for.

kevin

Yes, you get what you pay for, so since the customer paid for Android, thus, Android must be crap.

Google wants to have their cake and eat it too. They want to be thought of as open (even though they're not; I'm still waiting for them to open-source their search algorithms). But they also want to exert a strong influence over products built with that open software in order to protect the brand. Maybe they're just really naive and thought that anyone who used open software would build really good stuff? 😉

In any case, is there a good path between those seemingly opposing goals?

Can Google ban any company who used an Android fork from calling it an Android phone? Can Google ban any company who doesn't have the Android Market from calling it an Android phone? Can Google stick all these restrictions in the Android open-source license and still have people think that it (and Google) is open?

davel

I think the issue is ignorance. Google is not a consumer company. They are a services company. They provide search services and ad services and other tools like Maps. All of these are free to the user so expectations are low.

Phones/Tablets are a different thing. You pay real money for them. Your expectations are different. When you have a problem you want to go to the company that sold it to you and have them fix it. The first Google phone ran into this problem. People bought it and when they had an issue they wanted it resolved. OOPS.

Apple has been in this business for decades.

WaltFrench

Well, *my* definition of “open” has hardly budged.

Go read the Android developers pages. They clearly state that “open” was intended to attract developers, that while they had a commercial venture, openness was important to advance their interests. Now they're rather radically tweaking the term, because Android is still “open.” It's just more open to some than to others.

JustSayin

chromeOS there is nothing really to customize for anybody, it is just a browser more or less.

http://twitter.com/davidchu @davidchu

I think the QA costs are insignificant compared to the support/maintenance costs. A critical advantage of iOS is that apps crash less often and so you have less customer support emails. This leads to sustainably lower prices and a healthier ecosystem.

pk de cville

Not a comment for here, but it seems I need to leave a comment in order to subscribe to comments.

IntenseDebate: How about allowing us to subscribe even if we don't want to comment?

stephenreed

Horace, I believe the assumptions of your argument are debatable.

Here is why…

(1) Google is vertically integrated. Years ago they bought dark fiber and built enormous data centers. On the other end they want to control the client OS in order to steer users toward their online services and offline apps.

The Google Chrome web browser is a good example of this, as well as the arrangement Google has with Firefox for preferred search engine. In conjunction with Android, Google is also developing ChromeOS, the linux operating system whose user interface is primarily the web brower. Reports state that ChromeOS will run on both Intel and ARM, the latter having ten hours or more of battery life in the laptop configuration – the netbook reborn!

(2) The relatively modest investment Google makes with Android development and carrier revenue sharing is well paid back by the resulting user interaction with Google servers. Even though Android is open source, Google has revenue-generating non-open service components that are layered on top of that otherwise open stack.

(3) My take on the recent Google policy change is that Google wants to ensure that Android end users can receive frequent updates. That's totally in accordance with the recent Google policy on their Chrome web browser frequent update schedule. Indeed, Chrome automatically updates itself, which Android cannot yet do. If carriers continue to develop fragmented versions of Android, then updates may *never* happen for certain phone owners.

Furthermore, I understand that certain carriers in Asia have removed the Google proprietary service layer from the Android software stack and are substituting other service providers – thus directing potential service revenue away from Google. The latter's recent policy change may make this type of fragmentation more difficult.

Finally …

I consider the conclusion of your argument to entail the prediction that Google will somehow suffer from its Android platform. If as I expect, Google prospers from Android's widespread adoption, from both existing services and new revenue-generating services yet to be deployed, one would have to question your assumptions.

This topic bears periodic revisits to see how Google fares.

http://mobiledeviceinsight.com Kevin Taylor

Yes Stephen, there seems to some lack of understanding on what the incentive is for Google to offer Android, and the relative cost to develop and maintain Android. The access to event data in aggregate as well as individual is what everyone wants. Apple is trying to get the data from the handset and store alone through forcing in app purchases and a proprietary payment model.

A term like "Ad revenue" overlooks the value of Google's objective which is to increase efficiency of interaction between buyers and sellers.

By decreasing the number of transactions and time it takes for buyers to find what they are looking for or make new discoveries Google adds value.

Apple iTunes search and Genius are very efficient on the surface but the lack of data publishers of the content get from Apple, limits their ability to understand the what values their various end customers have. New entrants to markets who have an initial innovative understanding of customers values will not be on a level playing field for very long to be able sustain growth without access to some of this data. The in app purchase model will only extend this inefficiency.

Having Android out there, even if it was not the leader, puts competitive pressure on alternative mobile OS providers to offer some level of choice for consumers that will lead to integration with Google's services.

One great benefits for consumers that Apple iOS created and is enhanced with Android is taking away and limiting the influence of carriers (particularly US) had. Carriers at this stage are stifling the innovation potential of mobile due to the business model they have of selling services and plans that conflict with the needs of consumers and business. Carrier's financial position, oligopoly situation and the market expectations for high profits on them drive them to provide poor service and crappy bloatware infested devices to increase ARPU. For that everyone should be eternally grateful to Steve Jobs and Apple.

The regulatory agency relationships with carriers still provides them some leverage over device makers. However the direct relationship consumers have with the brand of OS they are running is much deeper than the relationship consumers could ever have with carriers or even device brands like Motorola, Samsung, SE, and HTC. I looked at the HTC Flyer at CTIA last week and even though it had less desirable screen size, thickness, and older processor, the user experience was differentiated well enough for me to have a tough time if I had to choose between the Flyer, Samsung 8.9", or LG G-Slate.

My opinion had been until this week that many brand device makers running Android would be out of the market in 18 months due to the limited margins the could negotiate since Android is what distinguishes the device, not the hardware.

Google's problem with Android is that a new mobile OS may take up to 3 years to mature (so I have heard) and they have only been shipping widely one year and developing for 2 years? as Google project so far. The biggest problem with Android now are the bugs. If device makers make changes to Android they ship that prevent upgrades to existing devices the consumer image of Android OS being inferior will prevail longer even if it were to become superior on the latest revision.

But the premium brand device makers know they are screwed by using Android now particularly tablets as well as the smartphones. So Google threw them a bone to keep them happy, limiting competition – for now. It also helps Google fix Honeycomb by dealing with a more limited group of devices.

If Google is successful in making Honeycomb well and has competitive on device user experience, will they open up Honeycomb? I think the answer is yes because premium brand device makers will still not be profitable competing with Apple and whatever RIM and HP may offer. They will leave the market and the a low margin ODM model will take over. Google has leverage over the "usurping" of Android or creating new unique Linux based versions by denying access to the app store.

The premium brand device makers must realize now they never will have successful app and content stores, where the real profits are. Amazon's new offering has made that clear, because well, Amazon is what Amazon is, and the device makers are not. Amazon realizes that the best way for them to be successful is cooperate with Google rather than device makers or carriers for data sharing. There is no reason for Amazon to cooperate with Apple now, Apple has made sure of that. And the premium brands will have very tough time with the cost of creating their own app store, even tougher than RIM has now. The brands also have a much smaller upside than Google for creating unique OS and app stores.

HP has the only OS that is close to competing on device user experience. Amazon's new cloud services are a big benefit for HP as they have path to sell a device that at least offers 2 out of 3 requirements to compete – UE and efficient content. Apps will still be a challenge unless they too fill in Balsillie's "tonnage" tick box and support Android apps somehow.

So I think Google knows what is doing for a change, at least at this moment.

stephenreed

Thanks Kevin for understanding my point and elaborating it far beyond what I could have said.

I suppose that the current situation of Android hardware manufacturers is analogous to the first few years of the IBM-compatible PC era. There were hundreds of screwdriver shops building boxes using the then ubiquitous MS-DOS operating system. Of these, only giant Dell, Gateway and Acer survive to this day. Knowing the likelihood of eventual failure probably won't keep all the current Android-compatible handset and tablet assemblers/manufacturers from this intensely competitive marketplace.

In contrast, the carriers have a form of geographical monopoly and the steady, every increasing revenue streams from cellular data services. As competition eventually reduces the number of Android-compatible device manufactures, the carriers – as internet service providers – will do fine.

I speculate that HP WebOS will be an also-ran and not attract enough app developers.

http://mobiledeviceinsight.com Kevin Taylor

Hi Stephen,

Yes there is similarity to the IBM PC era (and failure of PS/2) but there is the difference in that was about building HW trying to optimize traditional price, performance, quality, and with Dell adding important service distinction later.

But this the difference is the three key elements consumers want UE, efficient content discovery and acquisition, and innovative applications that create new experiences consumers didn't know they wanted.

If Google's cloud content offering is comparable with Amazon's, and they mature Android, they will have all three key elements in house. Having three competitive content options will be enough to also benefit publishers. While I do not have much love for magazine publishers, I don't want books and other products subject to 30% mark-up. This will work against innovation. For Music the old business model of mega-stars and associated concentration of revenue that record labels desired also works against creativity, so I don't mind if the that goes away.

Carriers are worse at about 40% mark-up and likely to do the job of payment clearing house so poorly everybody will lose. So carriers should not be allowed to get an upper hand because they have no incentive to perform in the best interests of consumers.

What is different here is that Google will be the "majority stakeholder" in any Android device from the carrier's point of view. There is about a 30% chance I estimate, in the US now, that the carriers will not get the upper hand again for awhile for another reason.

LightSquared has a business strategy to build an LTE network and sell bandwidth wholesale to customers in a utility model. If successful this will become a huge benefit for US consumers and business as low cost of data is crucial to being competitive and fostering innovative ideas with the other developments in mobile. I give a 30% chance because of the opposition they will continue face and challenges of every sort coming indirectly form AT&T and Verizon. (The GPS issue will be either a show stopper or de-risked by mid-June)

Even if LightSquared fails there will be increasing understanding of the need for lower and lower data costs in the future and the inability of current carrier business models to deliver it. So I have some hope.

I feel the same way about WebOS as you do from a business perspective but as Horace as stated iOS and Android came out of nowhere to dominate segments in two and one years respectively. However the app situation is a much bigger challenge for a newcomer than it was for Android when it entered the market and device makers and no other real OS choice. There still are many feature phone users to convert to smartphones but there is entrenched user bases that will shepherd the new converts to their camps.

I don't even want to talk about MS and Phone 7. When I saw the devices on display at CES and CTIA and no one in line to use them. I almost felt pity, but just for a minute then it went away.

relentlessfocus

Kevin I disagree with several points of your analysis.
1) "Google's objective which is to increase efficiency of interaction between buyers and sellers. "

Google's objective is to increase their ability to sell targeted advertising at premium prices. The more information they have on users coupled with sophisticated techniques for targeted marketing based on the info they accumulate, the higher price they can charge to advertisers. You may feel we're saying the same thing but your argument makes it sound like the end beneficiary is the phone user while my line of thinking says that the end beneficiary is Google and their advertising customers and that the phone user is only a tool in their game.

2) A small point but you claim that Google is adding value to the phone user because targeted marketing gets the right product in front of the users eyes and thus adds value. I do a lot of shopping online and I have to say that I've never found the ads thrown up to me to be useful and many times they're downright unuseful. Example: I was shopping for a coffee maker. I searched online. I bought a coffee maker. It's now 2 months later and I'm still seeing coffeemaker ads on web pages I'm visiting. It's counterproductive, I don't need a coffee maker any more.

3) Google and the handset/tablet makers are hooked on the horns of a dilemma which I eluded to above, namely, that fragmentation caused by customising Android by manufacturers is a problem for Google (updating OS and apps that won't run on various versions of the OS) yet for the handset/tablet makers, differentiation from their competition is essential which is the reason they turned to customisation in the first place. To the extent that Google curates Android, the handset/tablet manufacturers will be dissatisfied. To the extent that manufacturers are satisfied, Android suffers.

Selling a commodity OS means the only point of differentiation for handset or tablet makers is hardware and the life cycle of hardware at any particular price point is too short for the manufacturers to amortise their costs on units sold before they have to lower prices or update their products. There is no profit to be made by this. A further problem is that short production runs limits bulk buying which raises the price on components which will soon be obsolete. This is particularly true of the more expensive parts of the phone/tablet like the screen, batteries and CPU.

As Google pushes its curated openness on handset/tablet makers they simply increase the liklihood that handset/tablet makers will look for alternative solutions.

All strategies to market have upsides and downsides. The key is in how you manage the situation. Of the big players I honestly think that Apple, HP and possibly RIM have the advantage in an integrated approach because their customers are the end users. I think WinPhone7 and Android are at a disadvantage because in one case (Microsoft) the customer is the phone manufacturer while in Google's case its advertisers.

I happen to own a fair amount of Google stock and I can tell you that the market is very suspicious of Google's approach despite all the positive press about Android's market share (not profit share). Google stock today is lower than it was in January 2010. What's even more important is the news coming out of Motorola and LG implying that they're not happy relying on Android. HTC seems to be the one company which is doing well, at least compared to their depressed prices of the past few years.

I actually think Google doesn't really know what its doing, the corporate culture seems to rely too heavily on ad hoc decisions to see what works.

stephenreed

Sorry about the decline in GOOG relative to NASDAQ but I think its all about the talk that Google's search engine has been gamed by the search engine optimization folks – to the extent that searches having to do with something you might want want to buy have become junk results.

Its been in the last few months that Google has seriously addressing the content farm issue, and we still don't know if that will improve the quality of the results.

On the other hand, Facebook has the potential to feature curated recommendations from one's social network that might indeed be a better algorithm than Page Rank for things one wants to buy. Investor buzz about Facebook detracts from Google, I think.

relentlessfocus

My impression from talking to investors and reading on the subject is that the reason that GOOG share price has not shown any significant growth is that most investors question whether Google really knows what they are doing. It's not about gaming the search results, its that 97% of GOOG revenue comes from advertising and Google seems unable to find another revenue stream. As Google is already the worlds' largest advertising agency an investor wonders how GOOG will continue to increase their profits at a significant rate. Android has brought in about $1billion in advertising revenue y/y and as you point out, the data gathered by Android phone users also has value. Compare that however to Apple's revenues of $35billion y/y on smartphones and you'll see why Apple stock has gone up dramatically in comparison. In the end, Android is not going to be Google's main focus as the revenues it generates isn't enough to keep the company growing. It's no coincidence that when Eric Schmidt was pushed aside Larry Page said that his goal was to reinvigorate Google with startup fervour.

stephenreed

Thanks for the insight.

I can see where advertising has a ceiling directly related to the growth of the world's economy – and no more.

On the other hand, Mr. Jobs perhaps was not so much intrigued years ago by Steve Wozniak's homebuilt computer as a *computer*, but rather as a very cool electronic device, whose magical capabilities, when carefully packaged, could delight the consumer. Apple might be a company whose mission is more than what they publicly state, it might be to push *whatever* capabilities that are revealed by software and digital electronic advancements into the consumer marketplace.

Compared with Google, then Apple's potential is far, far greater in that Apple produces vertically integrated and well composed consumer products for high-end users and enjoys high profit margins as a result.

WaltFrench

Multiply the world's economic growth times Google's market share. Google's difficulties in China are but one path on the roadmap for competitive services.

http://mobiledeviceinsight.com Kevin Taylor

@relentlessfocus you make some very good points that I would like to comment on.

wrt 3) I would call the situation tension in balancing objectives not a dilemma. This is the tension that every open innovation platform faces in early life. I have made the statement "It takes a wizard to start a bazaar" several times recently to attract attention to that fact. This statement is a reformulation of a quote by Erik Raymond on open innovation;

"Eric Raymond himself is also quoted as saying that 'one cannot code from the ground up in bazaar style. One can test, debug, and improve in bazaar style, but it would be very hard to originate a project in bazaar mode.' In the same vein, Raymond is also quoted [5] as saying, 'The individual wizard is where successful bazaar projects generally start'. " http://en.wikipedia.org/wiki/Open_innovation
While Apple has Steve Jobs and a few other who acted as the "Wizard" to start the bazaar, the bazaar that Apple has created is somewhat limited. From a financial perspective the $2B that Apple has paid to app store developers may sound large but considering the $47B game console industry revenue there is a long way to go. (side note – Further if you think of the number of developers and amount effort they have put in to app store apps the business model starts to look like Mary Kay cosmetics. So there will be a lot of outdated tonnage soon.)

Google Android went into bazaar mode before the wizardry was finished. I agree it seems Google did not know what it was doing. Device makers were too stuck in the "PC era" to notice the problem. Asian device makers were shocked at the reversal of fortune the iPad caused to netbooks and less but noticeably to laptops. Motorola was desperate to stop losing money so jumped in without thinking. So Google has to pull Android (Honeycomb at least) back at least for awhile.

But from a hardware perspective the comment on life cycle amortization is not correct going forward. Device makers are used to introducing new phones regularly and the cycle is driven by CPU and wireless radio chip vendors not device makers.

Android has shipped on ARM 11, Cortex A8, and now Cortex A9 processors as has iOS.

Once you ship volumes of a device over a million the pricing for components gets very flat. Think of a 1/X curve and the low slope tapering after 500k, then little after one million units.

Models of devices from one manufacturer in one cycle share about 90% of the components even if the the display size is different. Plastic and metal get cheaper even faster the electronics as volume increase. Battery cells and memory may get a little cheaper beyond 1M especially if it Lithium Polymer. Display size and resolution can affect product costs if say only 50% of desired volume can be obtained due to a shorter cycle but the *delta* is only a few dollars at most on a large 8 – 10" display.

The biggest difference on tablets has been the touchscreen. This is of course the most important part of the hardware offering for new devices. The Touchscreen is the new input that the SW GUI of iOS made tablets viable after years of obscurity because Windows was not iOS. The touchscreen Apple uses on the iPad is capable of 10 point multi-touch. It is very difficult to manufacture and Apple has the only suppliers that have experience making it for them. The cost of the touch screen grows pretty much as the square of the diagonal so it is pretty expensive about $60, making it the most expensive single component.

The Touchscreen is the one area where Apple may have a significant cost advantage in HW costs. But I expect that amounts to only about $10 over competitors who are getting away with less than 10 point touch for the time being. The rest of the component cost advantage is less. Apple's assembly cost as Foxconn is probably a little less than other manufacturers even though the other manufactures (in-house or outsourced) are located lower labor cost parts of China.
(CONt'd)

http://mobiledeviceinsight.com Kevin Taylor

(CONt'd)

The re-use of IP and form factors helps reduce incremental tooling and testing costs for each cycle.

The reason brand device makers can't make profits on Android is solely that they have little value to negotiate on with carriers and in other channels like with retailer Best Buy. It will be very difficult to change this situation.

wrt 1) I think people forget what websites and search engines were like 7-12 years ago. Google's prominence cleaned up that shameful carnival town crap and made eCommerce work for everyone fairly. Google's "do no evil" may not be as kosher as they say. They let crappy affiliate sites exist for awhile when they were need for revenue. They let dubious health care products and food ads proliferate till they could ween it off as public awareness of there profits as result almost reached MSM. But they have done a hell of lot more to make the web meaningful and relevant for information as well as commerce than any other company by a long shot. People forget that.

wrt 2) That problem will be diminished with better integration of data. What other existing or potential future offering elsewhere will provide more benefit to consumers and why?

Finally so to hear about the amount of Google stock you own. As a user of of Google Adwords since 2004, including peak spending one year of over $100,000, I can tell you that even before the economic downturn the addressable market was in decline. There was tremendous excess demand that could not be satisfied in that period that kept up competition driving up keyword bid prices. But as many realized even if they worked hours like an entrepreneur, provided real value and service, Google took home more than you did for your efforts. So demand has fallen below the saturation point.

Google's efforts for Android are a way to preserve the revenue stream it has and stave off Facebook. Motorola and LG can imply, but what can they do realistically? There are always possibilities but I wouldn't want to be in their shoes.

relentlessfocus

A couple of quick points and then I need to decouple.
I'm familiar with the theory of open source software, I did a fairly major software project with open source software and paid a dear price in experience learning why the theory of open source is wonderful but in a business reality it sucks. I'm not impressed by Eric Raymond.
Much of the rest of what you write falls into the category of "the history of the world according to me". I say this because I see no reference to support material or examples. The problem that results is we're left with an "you are, I am not" kind of discussion which I don't find useful. YMMV
I don't know what you mean when you say Android has shipped on various processors and then you say "Once you ship volumes of a device over a million … then little after one million units.
Two points, 1) It's not how many cpus are running android, its how many cpus motorola buys and then how many LG buys etc and compare those numbers to how many Apple buys for its one device. There is an order of magnitude of difference. And I don't accept your assertion that Apple's massive purchasing power doesn't have a huge sway in purchasing power though I don't have any facts at hand to refute you. So perhaps its best at that point for me to decouple. Cheers.

http://mobiledeviceinsight.com Kevin Taylor

Reference materials are widely available and easily found such as below. I have Asymco report that he published but I can not post it here.

500k is much smaller number than the smartphone portions of Android 67,000,000 that other device makers manufactured. CPU and all other common components were well over 1,000,000 for each manufacturer of Android devices. Many of the components are common across other products the manf produces and are much higher.

I was surprised to hear about Motorola thinking about developing its own OS. Of course, to depend on another company for the most important and identifiable part of your product is risky (whether Win 7 or Android) but Moto and many of the other handset makers have been losing money for years and don't have the resources to develop their own OS. Motorola has forecast more losses this year even with all their hot selling Droid products, so I really think they're bluffing about creating their own OS. Look how much Nokia spent on its OS and still couldn't get the job done. Moto and many handset makers have no choice but to hitch their wagons to the cheapeast OS and hang on for dear life!

http://mobiledeviceinsight.com Kevin Taylor

I agree that developing a mobile OS at this point would be a challenge especially based on how well Samsung Bada has been doing.

Although not due to the cost of the resources required to do it. The acceptance of another OS by carriers and costs of setting up infrastructure support with global regulatory agencies would be a self defeating task at this point. The device maker would be at the mercy of carriers so the advantaged gained would be lost. It is hard to imagine a new OS being that much better than iOS that would create consumer interest enough to be successful, but anything is possible.

davel

So you are saying that Google now needs to define approved methods of interacting with the OS so they can do easy upgrades? I guess that is doable. They would have to prevent HTC and the like from making changes in the kernel space.

All the major vendors have some sort of user experience software. I do not know if it is a superficial program/daemon or something more invasive.

You also bring up a good point about the pipes. One more reason to kill the tmobile takeover by att.

stephenreed

Automatic OS upgrades are possible when the kernel is cleanly separated from the rest of the system. Technically this means that proprietary device drivers below the kernel are OK if they conform to the binary Application Programming Interfaces dictated by the unchanging kernel device driver specification. Likewise a graphical skin over the kernel may be proprietary as long as it too conforms to the unchanging kernel binary API. One needs binary compatibility rather than simpler source code compatibility in order to perform remotely controlled automatic updates without recompilation.

Device makers and carriers adding proprietary code around the Android kernel and around Google proprietary services, will in the future have to conform to the non-fragmentation agreement. In my opinion, this not onerous. And not enough for partners to abandon Android for an uncontrolled environment. Note that iOS and WP7 are both more controlled than Android – so where else will the partners go?

For the current cases in which partners are performing invasive changes into the open source Android kernel to support some device, or to provide some skin feature, Google must reasonably decide to enhance the kernel API to accommodate the desires of its partners. It is suggested from what I am reading about non-fragmentation policy meetings, that this discussion is occurring.

Sander van der Wal

Afaik, apps do not make that much money. Doesn't Apple make most of its iOS money from operator subsidies?

YipYipYipee

I think, eventually, Apple will be in the enterprise space, with Post-PC devices, which will account for 30-50% of their revenues.

If I were to put my enterprise IT deployment hat on, I can see the company maintains support of Post-PC products for at least two generations and homogenous software tools for different devices (e.g. smartphone and tablet).

Looking at Google, there is the fragmented Android deployment for smartphones and a separate (but related) release for tablets (i.e. Honeycomb).

Apple iOS is the “no-brainer” for enterprise deployment, right here, right now. Google’s OS platforms are for consumers for at least the next couple of generations. And for now, that’s your delta.

newtonrj

Winners and Loser – Who wins in this decision? Who loses?

Competition
– Microsoft and Apple get uniformed OS competition. All hansets get updates equally, patch management and feature support

Manufacturers
– Winners are large-scale manufacturers who have not supplanted Google search or tweaked UIs.
– Losers – Anyone who has a history of such.

Carriers
– They don't win or lose but do make it harder for handset manufacturers to differentiate.
– Why would a carrier have more than two or three Android handsets?
– Skins, cases and screen sizes don't make the case for 142 flavors.

That is a Industrialized Nation view. However, I ponder viewing developing cellular markets, this change may remove them from the license pool in the longer term. Unless they can accept a closed source and root it later. . . -RJ

This is highly speculative. Look at the carriers' history of “testing” upgrades until they are irrelevant or forgotten. Happening today to Microsoft with some of the biggest carriers, well after the upgrade fiasco has been understood.

In any case, Google has next to no say over this: it's a deal between the carriers and the handset manufacturers.

newtonrj

We agree to the same point. The statement was to the goal of Andy Rubin by closing the source, controlling features and consolidating the focus. What does he/Google hope to gain? I assert his goals include a more direct path to the handsets. Not letting the carriers & handset manufacturers slow the update process. -RJ

WaltFrench

From a December interview with Walt Mossberg:

Walt: I notice more and more they are taking on the personality of the carrier, not Google, not the handset maker. There are lots of what I would call craplets. Verizon, for example, swapped out Google for Bing. Is there a danger it is being taken over?

Rubin: That’s the nature of open. That’s actually a feature of Android.

He takes a swipe at Windows Mobile, saying that the alternative is a commoditized world where all the phones have to have a start menu in one place and all the icons have to be tiles.

My read is that three months ago, diversity and customization was a feature, but now it's a bug.

This might well be Google's smartest move, but there are many who will wonder about the integrity of a firm that changes its fundamental philosophy when the prior one seems inconvenient. Google has said repeatedly that “open,” in which individuals could do with Android what they wanted (and presumably, let the best option win), was the fundamental way to assure participants that their work would be viable. Now, with carriers, handset manufacturers and even other software shops delivering forked versions that utterly cut out Google's income stream, the story changes. And in any business, integrity matters, even after say, a few dozen firms go banko because they thought they would have access to Honeycomb this year.

There are now maybe six top-tier OS versions for mobile devices, and the risk of “any one point of failure” has disappeared—should Apple go off on some bender, all the others will step into the breach. The reason that Google has given for “open” is over and I doubt we'll hear more of it. And not just because it's embarrassing.

http://twitter.com/davidchu @davidchu

Oh I doubt they are going to give up on the "open" branding.

They are just going to paint bad manufacturers as the culprit. "We wanted to give you this amazingly open OS, but these manufacturers acted like petulant children with it so now we have to take away their candy."

simon

"- Winners are large-scale manufacturers who have not supplanted Google search or tweaked UIs. "

There is no company that did not tweak the Android UI. Every large Android handset maker did it.

newtonrj

Point -> Simon. Can we agree that future versions will be tweeked along acceptable lines as visioned by Andy Rubin himself? To the degree that Android is comfortable their OS is not diluted, changes to UI and skins approved. Where changes to search, cheezy skinds or brand image diminished by shaddy handset quality, Google will not IMHO approve. -RJ

Waveney

That Androids almost reckless expansion in numbers would create disruption from within, is almost a statistical 'given' when you consider the medical_population dynamics_evolutionary evidence. I'm reminded of John Gruber's quote "More and more, I’m convinced that Android isn’t a single platform. It’s a meta-platform upon which handset makers build their own platforms" http://daringfireball.net/linked/2010/11/13/netfl…
I can't help but start to imagine the answer lies in becoming the new model 'Windows Mobile' and start charging for the OS through favoured partners and at a stroke removing 'Google versus Android' as a problem. But then Google would have to accept 'ownership' of the code and open itself to multiple patent suits whilst ensuring feature parity across partners with an inevitable slowdown in development giving more opportunity to Apple and so on and on…. the stuff of schizophrenic nightmares. Of course we all know how that worked out?

'Android will no longer be disruptive.' Considering the aforementioned evidence this means they become more likely to suffer disruption themselves … a classic cleft-stick WTF scenario. It's beginning to look like Android is unsustainable in the long run?
Did I just write that?

Horace, what can I say? Continually and provocatively probing…. great stuff

Waveney

Bruce

"They may turn to homebrewed versions of Linux or new forked Androids." One of these is called OPhone. I don't know much about it, but, as you say, the more unpleasant Google makes it to license Android, the better chance OPhone and others like it have. http://en.wikipedia.org/wiki/OPhone

http://twitter.com/davidchu @davidchu

I can't find the quote, but the man who started OPhone was quoted as saying that the smartphone was good enough already. That tells you all you need about how much innovation will be tied to that platform.

Iphoned

What a out the accumulated potential IP liability growing daily. That Oracle Java lawsuit is still moving through the system, isn’t it?

berult

Android was not seeded into the mobile mindset to grow profit but rather to boost the churn rate from dumb to smart, …and imprint the Google trademark on the process.

If you go along with this premiss, two Google-centric consequences pop up:

-If Google is a prime engine of growth, some secular drivers of the mobile Market are henceforth marginalised. It's what I call investment in core positioning.

In short, no matter the estranged and contradictory ways they go about it, Google has to 'google-ize' what Apple has from the outset 'apple-ized': give market volume to seeded intensity, wattage to amperage, and monetize both through time scaling of place-holds, patents infringement and smoke-screens, and seal it all in through a bubble-style proprietary framework.

In that kind of gung-ho geeky set-up, safe-houses stand few and far between, so beware of the land of milk and honey; …better rely on your home-grown smart and in-house savvy…!

chandra

Hey! You forgot about giving roods to the acreage, no?
That's important too, guy!

relentlessfocus

Google may have it both ways but end users lose by getting an out of date, incompatible and difficult to upgrade device that is not the state of the art. Treating the end user this way will not build the kind of user experience which yields brand loyalty.

Let's say Google never release another version of the code base from today onwards, at the rate at which Google release new versions it might take only another 9-12 months before the current 2.3.3 code base is obsolete and used by a relatively small percentage of shipping devices.

For example, Android 2.1 was released in Jan 2010 and now represents under 30% of devices, with over 60% of devices running an Android OS version introduced within the last 9 months (2.2 released May 2010)[1].

Restricting access to the latest Android code might not hurt in the short term (< 6 months), but it would begin to bite thereafter with those vendors who aren't willing to dance to Googles tune.

second para, "…2.3.3 code base is obsolete, ^not compatible with the latest 2.4.x+ applications^ and used by a relatively…"

stephenreed

I think that the Android non-fragmentation agreement will motivate both sides to stabilize the kernel binary Application Programming Interface, with respect to backwards compatibility.

This is another solved problem. MS-DOS has been backwards compatible for decades, MS Windows for many years, and likewise standards such as TCP, HTML, WiFi, USB and so forth. Once Android has a legacy of established partners and many users, Google must respect backwards compatibility for several of hardware device refresh cycles.

Eddie

In the long-term yes, but for the short term Google may want to intentionally disrupt those companies that are looking to gain a free ride by using Android source code running on top of PlayBook (RIMM) and MeeGo (Myriad) devices, or those vendors that seek to "fragment" Android and are unwilling to be shackled by Google.

By not releasing any further source code, and introducing some minor – but important ABI changes – Google could easily render the source code that is already out there entirely obsolete and redundant inside of 12 months, effectively scuppering the future plans of any company hoping to use that source code to their own advantage.

However once Google has the Android source code firmly back under lock and key, then and only then will they ensure the ABI rarely if ever changes with future OS updates.

Well, that's how I see this playing out anyway… maybe I'm being overly cynical but I think Google are concerned not just by fragmentation but also – and probably more so – by the possibility of non-Android devices benefiting directly from the Android eco-system.

In addition, with Nokia effectively out of the smartphone game, Google really has very little need to maintain the pretence of "openness" that it once did when it was the underdog. Perhaps this move is also a reflection of how little Google fear other newer – but still proprietary operating systems – such as WP7.

For Google to have maintained their "open" policy towards Android I believe they would need a credible open-source competitor, the only one being MeeGo and it's nowhere ready at the moment and suffered a major blow when Nokia hooked up with Microsoft.

Without a credible open competitor, why should Google bother with an "open" Android policy any longer?

Westechm

I believe that Google underestimated by far the costs of developing and bringing to market an open source mobile OS. I don't mean just the dollars for the initial investment. I mean the continuing problems and costs associated with maintaining the system, dealing with the phone manufacturers, the providers, the end users, the developers, the patent litigation, the governments, etc. I believe that they felt that all they had to do was provide an OS and tweak it once in a while, taking a more or less hands off approach to what others did with it.

All of this plus the management diversion, time and attention. It's getting to be a headache, and I suspect that they may actually be losing money on the overall proposition!

Certainly the Android cel phone manufacturers aren't making a bundle of money, and if they can't tweak their products how can you differentiate one from another? In what meaningful way is a Motorola product any better than a Samsung product, or an HTC better than an LG? Are these 'differences' likely to be long term?

In the automobile industry it used to be chrome and tail fins until Japanese quality moved in.

stephenreed

Good point. I suppose only the Chinese manufacturers, with a government push, could successfully make a fork. But then they might lose the American and other foreign markets.

Bruce

Cyanogenmod could successfully make a fork I think. They are not Chinese. And MIUI is a Chinese version of Android that has good international support.

chandra

OpenMind is right.
Once you have breathed in even a soupçon of a whiff of a taster of semi-independence as a handset maker, you can never go back to being in hopeless, slavish thrall to an OS pusher.
I think the refrain goes something like this, although I don't have the words in Mandarin…..
Almost free at last!
Almost free at last!
Lord god almighty, me is almost free at last!
Google has played fast and loose with fire in its zeal to build OS share.
The trouble is, you cannot put these several energetic, ambitious genies back into the one bottle.
God knows what Bada will turn out to be, but at least Samsung read the writing on the wall a long time ago and is trying to do something about it.
What's to stop the other players, large and small, from forking around with Android, standing on Google's shoulders to roll their own?
After being jerked around by Google as sharebait, who wouldn't want to try?
The handset makers have choices.
Google really doesn't, if it wants to dominate user share.

Westechm

Larry Page takes over Monday. Are these latest moves his or Eric's?

I postulate that Android was Larry's idea and he is not happy about how it is being run. How long will Eric last?

Rick

Reading your article was painful seeing how clueless you are. I won't go into everything but the example I'll give you is similar in sentiment to the others. For example, you say that with the new restrictions, Android won't be as good for the noname manufacturers. Are you kidding? The restrictions are meant to "standardize" Android in both software and hardware. This will actually *level the playing field* with the big manufacturers.

Do you think that if this move would take the noname manufacturers out, the big manufacturers would still be somewhat upset as they are now? Why would they be when it would remove half of their competition, and it's also the competition that right now puts pressure on their prices? The noname manufacturers are actually at a disadvantage right now because they can't "differentiate" as well as the big ones can. Do you think that if Google standardizes Android this won't benefit them? You're really delusional if you think it won't

Off-topic – when are you going to write the 2nd part to your article where you implied that once iPhone joins Verizon, it's basically game over for Android in USA? It seems even one Android phone can outsell iPhone on Verizon, the HTC Thunderbolt, and I'm sure you know about that already.

gctwnl

There is an either/or part in this. If Android gets standardized, it will become less easy to differentiate at the OS-level. What do these smartphone makers actually sell? They sell a user experience. How should they differentiate when the core smartphone OS gets more standardized? With additions. What are addition on a standardized OS? Apps (think navigation, social media, etc.) and services (think content like music, video, books). How are these no-names going to differentiate themselves? Apps and services? I don't think so. They will move to another OS (probably Linux-based) that is cheap.

And btw, don't use words like 'clueless' and 'delusional' if you want to sound like a serious contributor. Those are tools of the demagogic trades, not the analytical trade.

WaltFrench

“This will actually *level the playing field* with the big manufacturers.”

Oh? Tell that to the 100 wannabe tablet manufacturers who are desperate to get Honeycomb, who have built business plans around the open source OS and announced product. Android quality matters not one whit to these firms if they have zero product. Even Samsung is SOL, despite having made a significant commitment to Android tablets, and despite being quite willing to work on whatever mysterious shortcuts make Honeycomb unavailable to the hackers and cheapo knockoffs of the world.

Google doth protest too much. All they have to do is to assert copyright control over the name (which they apparently contested but I don't know the actual status) and demand that the knockoffs label their stuff as a “Variant Version” every place they use the word “Android.” This is NOT about QC; it's about the fact that business economics will find and exploit every kink in the pricing or provisioning to expropriate/appropriate the economic value.

praev

@Rick

Troll on engadget or techcrunch. This isn't the place.

You're credibility went down the toilet when you bring up crap analytics that "calls to 150 different Verizon Wireless stores across 22 major U.S. cities, asking which device was selling better."

Really? What a bunch of lazy researchers. How about they also call up Apple, Best Buy, Walmart and any other stores that also sell the Verizon iphone and then compare the numbers. What about tracking online orders from these stores as well?

If you can't even see through such idiotic methods of data gathering, let alone refrain yourself from calling Horace "delusional" and "clueless". I'm not even going to finish, I can't believe I wasted my time on this.

asymco

Which article implied that "once iPhone joins Verizon, it's basically game over for Android in USA". I don't recall ever thinking that and certainly never writing that.

poke

I think to understand the future of Android you have to look at it from the perspective of the manufacturers. The unique thing about the mobile phone market is that there's a lot of friction involved in increasing distribution and it is therefore tremendously advantageous to be an established player. In the case of Android, Google doesn't have any meaningful relationship with carriers, and Android's dramatic success is explained by the companies that chose to adopt it (Google merely made it extremely easy to adopt). Anything that Google does to alienate these vendors harms Android. They can turn to another platform at any time, as long as their customers are not overly invested in the Android platform. That gives the vendors an incentive NOT to allow Google to turn Android into a platform success.

I would argue that Android's adoption has not been due to the availability of apps and media content, neither of which are comparable to iOS, and that Android has really been sold as a multitouch web-enabled phone with a handful of services (maps, mail, etc). I think Samsung, HTC, Motorola, et al, would prefer to keep it that way. They have to balance the desirability of the phone against the potential for their customers being locked-in to the Android platform, which would limit their ability to switch platforms or adopt a multi-platform strategy. Since there in no evidence that Android's desirability to its main customer base is due to its potential as a platform for delivering apps and content (rather, the opposite seems to be true: Android users are unwilling to purchase content), I would suggest that the vendors have a reason to actively sabotage Google's attempts to turn Android into a viable platform. The smart response to Google's new terms might be to deliver a highly-customised older version of Android where the manufacturer has more control.

In addition, I think most people are underestimating Windows Phone 7 as a competitor to Android. WP7 isn't comparable to iOS but I think it is comparable to, and can serve as a replacement for, Android. I think we'll see more vendors adopt WP7 in order to hedge their bets. Especially as Google's terms become increasingly more like Microsoft's. I also think we'll see vendors put more emphasis on their native OS strategies. Samsung has Bada. HTC has expressed a desire for its own OS and now Motorola is rumoured to be developing an in-house OS solution. None of these companies want to be also-ran Android handset suppliers (Apple's profits send a clear message in any market; see the recent Acer shake-up). Meanwhile, I think the disruptive effect of the iPhone will continue unabated, and Google's attempts to match it as a platform for delivering apps and content will continue to be an uphill struggle. I think Android is going to prove to have been a diversion from the main show, a way for the incumbents to fight back against disruptive change that will quickly lose its lustre, and be replaced by a far more diversity in the market.

http://www.noisetech-software.com/Perspectives.html Steven Noyes

Odd you bring up the Thunderbolt. So what you are saying, is a phone that is just released. A phone that is the best of the best of the best Android has to offer. This amazing phone is just matching the iPhone's sales at Verizon stores. The best of the best of the best having been just released; a phone at the peak of its sales (the report was done about 2 weeks back) is just matching a phone that has been available for almost 3 months?

This based off a report that does not include Apple's #1 sales point. Apple itself. It does not take into account on-line ordering. It does not take into account any 3rd party stores. Who actually goes to a carrier store to buy an Apple product?

In short the report BGR is missing huge amounts of data by not polling the primary location people purchase iPhones. But I am sure you thought of that glaring issue with the study.

This very simple observations shows you are missing a very important aspect that is discussed here often. With Android, the customer relationship is with the carrier. Go Android and be under the control of the carrier. There is a reason Verizon came up with the "Droid" trademark. It translates the Android relationship from Google to Verizon.

With the iPhone, Apple has stolen the customer relationship from the carrier and replaced it with Apple. You don't have an AT&T phone you have an iPhone. You do not have a Verizon Droid phone you have an Apple iPhone.

http://mobiledeviceinsight.com Kevin Taylor

I think smartphone cost to consumers is a red herring in the overall scheme of things. It is important to the device makers who only make money on the hardware but for consumers it should not be as important.

Multiple the number of months of the voice and data plan times the avg cost per month whatever it is, say $55 X 24 months and the carrier gets $1320 of revenue. The fact that they subsidized the phone to make it cheaper for you to buy is a fraction of what their revenue of the plan period. Even more important is the chance customers will change carriers when the plan is up. The value of the device from the carriers point to view to subsidize and promote is a reflection of the estimated average life of the customers acquired and how much can be attributed to the device offering.

Android's "point" was to offer a competitive choice to iPhone so that Apple would not bludgeon the entire ecosystem of carriers and content providers into submission. Apple makes much more on content;http://tech.fortune.cnn.com/2010/12/14/why-apples…

There is some counter-argument to this looking at iPad and iPhone device revenues, but this is mainly due to the fact Smartphone adoption is still in it's infancy. The Tablet market has zero real competition yet and is displace parts of existing markets so the pricing and margin for iPad is optimized at the appropriate market value. Apple would be doing a disservice to shareholders if they priced it less.

Kizedek

It may be a red herring in the sense that a consumer shouldn't quibble over 50 bucks on the front end when they are entering a two-year contract and they have to live with their phone day-in, day-out.

Yes, for the hardware maker margins matter. And in this area, Apple is cleaning up. A combo of the fact that Apple can both compete with it's component and supply chain and produce a competitively priced smartphone, and that they have something of value to offer the carrier – guaranteed new subscriptions.

For the carrier, though, over a third doesn't sound like "a fraction" ( 450 – 550, ie. 650 – 99 or 199). Some phones are apparently more expensive at full price than the iPhone. When critics were lambasting the high price of iPhones, I remember other phones could be shown to be 800+ at retail, and their two-year contract price to be similar or more than the 2000 iPhone two-year contract.

I think that carriers may be finding that the iPhone keeps their customers from switching carriers, all things being equal. If a customer finds reasonable coverage and service in his area, and has his iPhone, why switch carriers at end of contract? Consumers know the phone and it's features and service from Apple are going to be the same on another carrier, only the coverage differs.

An Android offering isn't going to have the same stickiness, or else the carrier has to work harder for it, by keeping up with updates or offering some better apps or services than a competing carrier. It's not such a sure thing for the carrier, therefore the carrier is going to take it out on the hardware manufacturer and make them compete in a race to the bottom.

Apple is not making lots of money on Apps. It's share covers the running and development of the store. Apple talks about breaking even. What the store does do is add value and differentiation to the iPhone, and this helps make it sticky; therefore, the carrier is forced to leave well enough alone. Apple has leverage.

Google wants to make its Android platform sticky, and to do that it needs to follow Apple and exert more control to make its UX more consistent across devices and its services less buggy. But this goes against each device being sticky in its own right (whether tweaked by the hardware maker or carrier). Google doesn't care if you switch carriers or devices at the end of your contract, as long as you choose Android again next time.

Or, maybe they do care, but realise that software guys can't just walk into the hardware business (to paraphrase Ed Corrigan, I think it was, about Apple as computer guys not being able to walk into the phone business). It requires constant iteration and support which they found difficult with their own phone.

So what is Android's "point"? Looks like what it was supposed to be all along… an alternative to an MS phone platform. To hedge its bets and hold the status quo just enough that it can't be edged out of mobile completely at any time in the foreseeable future.

So much for this "platform war" that Android fans keep hyping, with Android as the open champion on the white horse. Google has conceded the high ground and as much as admits that its users are pawns. What value can one element in a modular system actually add where there is no harmony between all the partners? It's Windows all over again. Who do you go to for support, for example? Google, the device maker, the carrier, the store where you bought it?

http://mobiledeviceinsight.com Kevin Taylor

There is HW, Apps, and Content. Apps do not equal content.

Content = music, video, magazines, virtual goods, etc

"Apple makes much more on content;"

Retail prices of non-contract phones are not relevant to what subsidies carriers actually fork over to device makers. When a single carrier can sell 5,000,000 devices versus 100,000 non-contract through a bunch of different channels it is very different. Do you think the carrier is going to give the device maker net 40% or 60% margin when they are taking 5,000,000 smartphones?

IPhone is the most sticky which is why Apple finally got a device on Verizon, to increase addressable market where AT&T service was too poor for people to switch networks to buy iPhones.

Eoin

The comment section is not dealing with the post. I will.

Aysmco claims no advantage to Google as people would search on the iPhone. This is true only if Android has not expanded the overall Market for mobile devices. I think it has, Apples supply constraints would see it falter even if , in the absence of Android that entire touchscreen smartphone market was theirs. Which I doubt taking price into account. The market would be smaller

Second question is whether people search more on mobiles. I say the existance of mobiles increases searches, clearly, when not at home or work.

So there is an advantage to Google here.

asymco

Nokia manages to make many more phones (and smartphones) than Apple does. If Apple were to create a low-end iPhone, there is no reason why Apple could not make an order of magnitude more iPhones. They still may. Flipping the switch to penetration (from skimming) is just a matter of strategic choice.

poke

I don't think Android has contributed to growth of the overall phone market but it has clearly been a major driving force in turning dumb phone users into smart phone users over the past year. If they'd waited for Apple to do it, it would have taken a lot longer, since Apple doesn't have the distribution clout of Samsung, HTC, Motorola, and company. So I think it has been good for Google (at least in the short-term), as you suggest.

We've seen astronomical growth in Android sales but no corresponding astronomical growth of market share (of the global phone market) for Android vendors, which implies they're using Android to up-sell their existing customers to smart phones, rather than taking share from anyone else. Meanwhile, Apple is still seeing steady growth, so it's still taking market share away from incumbents. Smart phones mean higher margins for manufacturers but none of them have margins in the realm of the iPhone. If you're a manufacturer, Apple is still eating your lunch, Android or not.

Eoin

Rick. The Verizon iPhone was the biggest selling phone in February and Verizons biggest selling phone ever, by their own statistics. In March we have a call around report to Verizons sales team , ignoring online sales, where most said the latest and greatest Android phone can just keep up with a device out for 2 months. That kind of stickyness is indicative of Apple's continuing success. Next month the thunderbolt will drop to 3rd or 4th and Apple will regain the top spot, it may drop to 2nd when the next big thing from Android comes out and then take top spot for months when the iPhone 5 comes out. What the report shows is very good news for Apple.

WaltFrench

Almost right. The point of Android was to offer Google services on mobile devices. And let's be clear what services we're talking about: advertiser access to consumer eyeballs. Google's entire online model is about selling eyeballs. (Transaction fees could become a significant source of revenue, but the model is very similar to the ad model.)

Ubiquity serves that interest, but not if manufacturers ship the handsets with Bing or Baidu. Not if RIM supports Android apps but with a different ad service. Apparently, for some manufacturers, the quality of Google voice and map features is not so compelling that deals with competing outfits wouldn't be more valuable in sweetening the revenues. Not hard to imagine that if NFC becomes a Big Deal, apps that use a competitor's system will mysteriously go missing.

Google has zero business interest in Android without the eventuality of those dollars. Hence the change.

http://twitter.com/davidchu @davidchu

The big question that has yet to be answered is if advertising is the best business model for smart phones. The lack of screen real estate is a real problem, compounded by the fact that touch areas have to be a minimum of 43 x 43 points.

Then there is also privacy concerns. Ad companies are trying to get your location and time data to track your daily routines to serve better ads to you. At it's core, that's what Color was about. Skimming data off your photos.

In every market shift, the values of the consumer change. Every company that company that built itself on what works best in a PC world is vulnerable right now.

http://twitter.com/kleptco @kleptco

Clearly Google Android is cratering.
Brilliant insights as usual.

Lava

And yet, Motorola is expected to report a loss of up to $62 million even after selling 10 million Android devices.

Android is cratering…in profits. And it's only going to get worse.

http://twitter.com/davidchu @davidchu

Android is not cratering. You can't take one example like Motorola and use it as evidence. HTC is still making healthy margins at ~30 points, so the problem is more likely to be with Motorola internally.

It’s basically a deluge of complaints about the local Samsung Galaxy S taking 8 months to get a official android 2.2 update. They aren’t blaming Google or Samsung, they’re blaming the _carrier_. The carrier is becoming the scapegoat for google’s shortcomings. Several commenters have even made complaints to the local regulator.

Currently this is just a update issue and they eventually got the update. But Telstra had its brand damaged by it. Now imagine if there was a critical security update needed in a update and users lost real dollars thru malware. Who’s going to get the blame? Android is becoming a HUGE liability for the carriers, it just hasn’t started yet.

In Au we get charged around 20cents for each SMS. There’s android malware out there that sends out a SMS to everyone on your contact list. Imagine the cost if that malware does that several hundred or thousand times. Is google or the carrier going to pay? You can bet the carrier will get the blame, as when has any carrier been able to release a timely Android update?

That’s the real impact of android, forget the business analysis and navel gazing, listen to what is happening in the real world

Perhaps that is one of the reasons why Rosenberg left? He talks about openness and cites Android as an example of that. Oops. Nevermind.

I am not saying closing off Android 2.x/3.x is a good or bad thing.

It seems to me that Page thrusting himself to the front of the queue is having repercussions to the philosophy that drives this company.

http://twitter.com/peter_burke_ceo @peter_burke_ceo

nothing has changed. the chinese will take android 2.3 and build smartphones for $100. This is going to put intense pressure on microsoft and apple to introduce lower cost handsets. It will also put intense pressure on RIMM. Android is open source. period. why does Apple sell at such a low p/e ratio? Android.

sweeps in CA

Horace, thank you for this forum. Much of it is clearly over my head. While reading this posting and the comments, the following thought occurred:

Both Apple and Google are highly innovative companies creating much disruption. Could Android be the stalking horse to uproot those stifling innovation, i.e. the carriers, Microsoft, and perhaps Nokia?

Let’s say Google never release another version of the code base from today onwards, at the rate at which Google release new versions it might take only another 9-12 months before the current 2.3.3 code base is obsolete and used by a relatively small percentage of shipping devices.

For example, Android 2.1 was released in Jan 2010 and now represents under 30% of devices, with over 60% of devices running an Android OS version introduced within the last 9 months (2.2 released May 2010)[1].

Restricting access to the latest Android code might not hurt in the short term (< 6 months), but it would begin to bite thereafter with those vendors who aren't willing to dance to Googles tune.